UPDATE 1-REUTERS SUMMIT-EADS

Sees flat to lower defense revenue

September 04, 2013|Reuters

(Adds detail about Airbus strategic restructuring)

By Alwyn Scott

WASHINGTON, Sept 4 (Reuters) - EADS is opting outof bidding on some U.S. weapons programs as it adjusts to cutsin U.S. defense spending, and it expects flat to lower revenuein defense business in coming years as the cuts deepen, a seniorexecutive said on Wednesday.

"There's no doubt that the government sector is flat todeclining and we're forecasting the same," Sean O'Keefe, chiefexecutive of EADS North America, told the Reuters Aerospace andDefense Summit.

International sales may compensate somewhat, he added. Thecompany is girding for a tough year for its defense businesseven as its Airbus commercial jetliner business books a recordbacklog of orders, including a sale of 40 jets to Delta Airlines, announced Wednesday, a deal worth $5.6 billion at listprices that ends nearly two decades of exclusive Boeing sales to the U.S. airline.

O'Keefe, speaking at the Reuters office in Washington, D.C.,said the U.S. bidding process has slowed in response to budgetcutting and sequestration, which he called "a self-inflictedfiscal challenge that nobody's ever seen before."

He said EADS is targeting defense contracts that allow it to build on core strengths, while avoiding far-reaching programsthat might not pay off. For example, the U.S. Army's verticallift aircraft program.

"I wouldn't say that we're walking away from things, we'rejust being much more specific about the core competencies," hesaid.

In July the company said it would restructure and rebranditself under the Airbus name, a shift caused in part by itsfailed effort to merge with BAE Systems PLC earlier inthe year. EADS had long sought to establish a defense-businessidentity separate from the Airbus brand, which had links to thelongstanding rivalry and trade dispute with Boeing.

The attempt to merge with BAE Systems "opened up a whole newstrategy" from its previous goal of balancing the size of itsaircraft and its defense businesses, O'Keefe said.

The failed merger "gave us an opportunity to rethink whatour strategic objectives are," he said.

O'Keefe said the company isn't concerned that using theAirbus name would put it at a disadvantage in bidding for U.S.defense work. The competition with Boeing to supply aerialrefueling tanker aircraft, he said, showed that EADS can competeon equal footing in the United States, and that buyers don'tneed to accept sole-source suppliers. Boeing ultimately won the$35 billion tanker deal on its lower price in 2011. Airbus wonan earlier round in 2008 with partner Northrop Grumman.